Former CEO, CFO and General Counsel Charged with Fraudulently Reaping Millions in Profits $45 Million Seized in U.S. Accounts

WASHINGTON – Three former executives of Comverse Technology Inc. (“Comverse”),
a publicly-held computer software company, were charged today for their roles in orchestrating a
long-running scheme to manipulate the grant of millions of Comverse stock options to
themselves and to employees, the Department of Justice announced today. Former Chief
Executive Officer Jacob “Kobi” Alexander, former Chief Financial Officer David Kreinberg, and
former General Counsel William F. Sorin allegedly orchestrated the scheme by fraudulently
backdating the options and operating a secret stock options slush fund.

The charges were announced by Deputy Attorney General Paul J. McNulty and Director
of the Division of Enforcement Linda Thomsen of the Securities and Exchange Commission
(SEC), joined by U.S. Attorney Roslynn R. Mauskopf of the Eastern District of New York and
Acting Assistant Director James “Chip” Burrus of the FBI. The charges stem from a coordinated
investigation led by the Department of Justice’s Corporate Fraud Task Force.

Alexander, Krienberg and Sorin, all of whom resigned from Comverse on May 1, 2006,
in the midst of an internal company investigation relating to options backdating, have been
charged by criminal complaint filed in the Eastern District of New York with conspiracy to
commit securities fraud, mail fraud and wire fraud. According to the complaint, between 1998
and 2002, the defendants reaped millions of dollars in profits as a result of their scheme and
issued false and misleading financial statements to the company’s shareholders and the investing
public regarding the true value of the options grants.

“The Justice Department is determined to see that our markets operate fairly and
honestly,” said Deputy Attorney General McNulty. “Investors take risks and do their best to see
into the future when picking companies in which to invest. We cannot allow corporate leaders to
operate under different rules, using 20-20 hindsight to line their own pockets. We will continue
to pursue misconduct in any boardroom where we find it.”

In two related actions, the government seized over $45 million from two investment
accounts held in the United States in Alexander’s name based on his alleged participation in a
stock options fraud and a money laundering scheme involving the secret transfer of more than
$57 million to accounts in Israel in an effort to conceal the funds from U.S. authorities. In
addition, the SEC commenced a civil fraud and injunctive case against all three defendants for
their roles in causing Comverse to publicly file false annual and quarterly financial reports and
proxy statements from 1991 through 2005.

Initial appearances for Kreinberg and Sorin are scheduled for this afternoon before U.S.
Magistrate Judge Viktor Pohorelsky in Brooklyn, N.Y. An arrest warrant has been issued for
Alexander.

“As alleged in the complaint, the defendants abused their positions in order to enrich
themselves and favored employees at the expense of the investing public,” stated U.S. Attorney
Mauskopf. “By backdating these options, the defendants, in effect, gave themselves and others
an opportunity to place a bet in the middle of a race -- a bet that paid off handsomely.”

“The alleged scheme of these defendants in back-dating options victimized both
Comverse shareholders and the American people,” said Assistant Director Burrus of the FBI.
“Their alleged fraud affected the company’s bottom line by deliberately misstating earnings, a
material misrepresentation to shareholders.”

As alleged in the complaint, from 1998 through 2001, Comverse adopted stock option
plans designed to provide additional compensation for executives, including the defendants, and
other employees. In the company’s proxy statements and other public filings, the defendants
represented that the options would be priced at “fair market value” on the date the options were
granted. According to the public filings, the pricing of the stock options under the plans would
serve shareholder interests because executives and employees who received the options would
continue to work diligently to promote the success of the company and thereby contribute to a
rise in the stock price.

However, as alleged in the complaint, Alexander, Kreinberg and Sorin fraudulently
backdated the options awarded under each of these stock option plans to days when the stock was
trading at periodic low points. As a result, the options were granted below fair market value, that
is, below the trading price on the date the options were actually granted. For example, in 1999
the defendants set the option price $35 a share below the fair market value on the day the options
were actually granted. Alexander allegedly took for himself more than 300,000 of those
backdated options, for a paper profit of over $11 million.

The grant of options below fair market value carries significant disclosure, accounting
and tax consequences. For example, the value of such options must be recorded as a
compensation expense against the company’s revenue and therefore, can significantly reduce the
company’s reported earnings. In addition, the grant of such options must be disclosed to the
shareholders because these options: (1) erode the incentives of executives and employees to work
for the future of the company because such options are at least in part a bonus for past service;
(2) impose a cost on the company because the company is committed to selling its stock at a
discounted price; and (3) reduce the earnings of the company.

As alleged in the complaint, the defendants fraudulently circumvented these accounting
and disclosure rules by secretly backdating the grant documents and by issuing false proxy
statements and periodic public filings misrepresenting that Comverse’s stock options were
granted at fair market value.

In addition to the backdating scheme, the complaint also alleges that Alexander and
Kreinberg generated hundreds of thousands of backdated options, which they parked in a secret
slush fund to be used at Alexander’s sole discretion to benefit favored employees. To create the
slush fund, Alexander and Kreinberg inserted dozens of fictitious names into the list of option
recipients submitted to the Compensation Committee of the Board of Directors. Once the
Committee approved these options, Alexander and Kreinberg deposited the options in an account
aptly named “Phantom” (later re-named “Fargo”).

According to the complaint, on two occasions in 2000, Alexander transferred a total of
approximately 88,000 options from the slush fund to another top executive. Although the
options had a four-year vesting period, on each occasion, Alexander made the options
immediately exercisable. The executive exercised the options the day after receiving them, when
the stock was trading at nearly double the strike price, and sold the stock at a profit of $4 million.

The defendants’ alleged scheme came to light in early March 2006, when a reporter from
the Wall Street Journal called Comverse and inquired about the unusual pattern in the timing of
the company’s stock option grants. In response, the defendants attempted to cover up their
scheme by authorizing false statements to be made to the reporter, and by lying to an in-house
lawyer for Comverse and to the company’s outside auditor. Additionally, Kreinberg logged onto
Comverse’s computer and attempted to alter a database to hide the slush fund’s existence.

The charges in the complaint are merely allegations, and the defendants are innocent
unless and until proven guilty.

The government’s case is being prosecuted by Assistant U.S. Attorneys Ilene Jaroslaw,
Linda Lacewell, Sean Casey and Kathleen Nandan. The investigation was led by the FBI New
York Field Office.

The Department of Justice believes that it is important to keep victims/witnesses of federal crime informed of court proceedings and what services may be available to assist you.

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